A Firm Utilizes a Strategy of Capital Rationing, Which Is

question 30

Multiple Choice

A firm utilizes a strategy of capital rationing, which is currently $375,000 and is considering the following two projects: Project A has a cost of $335,000 and the following cash flows: year 1 $140,000; year 2 $150,000; and year 3 $100,000. Project B has a cost of $365,000 and the following cash flows: year 1 $220,000; year 2 $110,000; and year 3 $150,000. Using a 6% cost of capital, what is the internal rate of return of project B?

• A) Higher than 6%
• B) Lower than 6%
• C) Exactly 6%
• D) Can not be determined from the given information

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Definitions:

Economy

The system of production, distribution, and consumption of goods and services within a geographical region.

Monopoly Position

A market condition where a single entity dominates the supply of a particular good or service, limiting competition.

De Beers Diamond

De Beers Diamond refers to the diamonds mined, marketed, and sold by De Beers, a company known for its historical dominance in the diamond industry.